Downside Risk For ARPU From Proposed Telecoms Pricing Policy
The South African government plans to introduce a transparent pricing policy in the telecoms sector as part of its ongoing programme to reduce the cost of communications. According to the Communications Minister, Yunus Carrim, the policy is expected to be finalised by the end of September 2013. Although details of the exact tools that may be used to reduce costs have not been disclosed, BMI notes that the end result of the policy poses downside risks to operators' revenues from traditional telecoms services.
|Vodacom And MTN ARPUs (ZAR)|
Consumer groups in South Africa have often complained about the high cost of basic voice and data services in South Africa relative to other countries on the continent. This attracted the attention of the telecoms regulator, ICASA, which implemented mobile termination rate (MTR) cuts in March despite objections from some operators. This move, along with intense price competition in the mobile market, has significantly reduced the cost of mobile voice calls for many phone users in South Africa, but it appears the government is not satisfied. Speaking at a public event in South Africa, Carrim questioned the rationale for South African operators to offer cheaper call rates in other African countries than they do back home.
Analysis of mobile tariffs across Africa shows that Sothern African countries, including South Africa, Zimbabwe, Zambia and Angola, have some of the highest rates in the region. There are various reasons for this, ranging from relatively high MTRs in South Africa to limited competition in Angola. BMI welcomes the use of regulatory tools that remove the burden of payment from consumers such as MTR cuts. It is yet to be seen if the South African government's proposed telecoms pricing policy will be limited to the use of such tools or will incorporate other measures that may directly impact operators' pricing strategies. Either way, it is safe to assume that the policy would increase the downward pressure on ARPU rates, which fell by around 30% over the three years to June 2013.
Vodacom reported a 1% decline in Q213 revenue compared to the previous quarter while MTN reported a 1.4% drop in revenue in H113 compared to H212. Both operators attributed the weak results to price competition and the interconnection rate cuts in March 2013. This trend is unsustainable amid rising operating costs. BMI therefore expects operators to aggressively develop new revenue streams that will be less reliant on the consumer market in view of the risk of further ARPU erosion from the proposed telecoms pricing policy. Vodacom and MTN are already pursuing a service diversification strategy with investment in non-voice solutions such as M2M and cloud computing. We expect other operators in the market to seek similar opportunities in the enterprise market in order to sustain long-term growth.